To finance or not to finance ...

[Rock Crawler]

With Kubota, rebates are what they are no matter if you pay cash or you finance. So Kubota obviously is not able to be used in this conversation. You walk in with $30,000 cash and I walk in with a modest down payment and finance say $24,000 and we both buy the exact tractor. We both pay the same number of dollars, but I borrowed their money with no additional financing costs. At the end, after I have paid off the loan note, you and I expended the same number of dollars (aside from the $75 charge from Kubota Financing for processing the loan app) for our tractors. You and I got the same deal, you handed over all of the $30,000 on day 1. I kept $24,000 in play in my stock funds and made the payments until I equaled you for total payment. But now I have more invested money than you because my $24,000 was still doing work for me.

 

[3Ts]

One more thing that's not been mentioned yet about financing - credit score. The loans affect your credit score in that if you don't have any loans, your credit score falls. I've been retired for over 10 years now and have everything paid off. House, car, tractor, etc. and I see my credit score is slowly falling. So, I'll be in the market for a new car later this year and will finance it for 2 years just to have something on my credit rating to keep it up. Also note that credit scores also affect things beyond the loan interest rate - such as insurance rates. So, sometimes there's a reason to take out a loan other than whether it's the best way to have the most $$.

 

[prof fate]

Buying used means (usually) paying cash. To get what I'd need that would be $12k or there abouts. I'd love to have 12k sitting in the bank for such a purchase, but alas, I do not.
So the only way to get a tractor of this price range is finance it.

It's much much easier to get finance on a new tractor than a used one - be that at the dealer or the local bank. Perhaps a home equity line of credit can be used as an easy way to get the funds.

I paid off my car and turned that payment into a tractor payment - so no issues financially - as long as the car lasts another 5 or 6 years!

As for the finance cost..it's renting money essentially. If the finance fee is $200/year that's the only cost above the tractor..so that's 'cost' for a year of having it NOW instead of some future time.

One thing my dealer told me when buying my tractor (used, paid cash) is that new tractor prices will to go up 3% per year on average. I don't have the time or ambition to figure that into your equation, but keep that in mind if saving your money and waiting the 5 years. That 3% per year is on the full price of the tractor, where as the 5% is on the remaining balance of what you owe, not the full amount.

I cannot justify buying a new tractor as it is a tool for me and for the little use I do use it, I can very well get away with buying used. It may not be new and pretty, but it is a tool that will not always look new and pretty after use so why spend more? If someone can justify spending more for new, more power to them and congratulations! it just makes it better for people like me with more used equipment for the future.

When I was younger I financed everything. Now, I try to not finance. If I were to loose my job or something more serious happened I need to know that I (or my wife and children) can afford to live without worry.

 

[RSR]

One more thing that's not been mentioned yet about financing - credit score. The loans affect your credit score in that if you don't have any loans, your credit score falls. I've been retired for over 10 years now and have everything paid off. House, car, tractor, etc. and I see my credit score is slowly falling. So, I'll be in the market for a new car later this year and will finance it for 2 years just to have something on my credit rating to keep it up. Also note that credit scores also affect things beyond the loan interest rate - such as insurance rates. So, sometimes there's a reason to take out a loan other than whether it's the best way to have the most $$.

Why not carry all monthly expenses on a credit card (ideally that offers rewards) and then simply pay off the total balance each month? This maintains credit, while avoiding the need to pay interest.

 

[MiserableOldFart]

For most people that do not farm, a tractor is a "toy." I could easily pay someone to plow me out, say ten times a year at $50-100 a shot, and sit indoors drinking a cup of coffee while it's being done. I could move firewood around with my old DR Powerwagon (another toy) like I did for 10 years before I bought the tractor. Firewood needs a lot of moving, from the cut pile, after splitting to a seasoning rack, then a year or two later from the rack to the shed, then from the shed to the house. I could hire someone to spread gravel on the driveway, plant trees with a pick and shovel, move wood chips with the powerwagon or a wheelbarrow, etc. I like the convenience of having the bucket full of firewood over my deck, three steps from the door, to bring firewood in the house. This act is repeated maybe 10-50 times in the winter depending on how ambitious I am bringing slings of wood in from the shed on a daily basis. Since I bought another, smaller toy to cut the grass, I no longer use the tractor to cut the grass. Still, now that my tractor is 12 years old, and given the outrageous price of parts, I want to trade it in on something a little more powerful. I will certainly finance it, looking for 0%, and knowing full well that it's not "really" 0% because you can get a better deal for cash.

I'll readily admit to be an outdoor power equipment junkie, but I take care of my equipment, and it lasts for a long time if I'm lucky, so what the ****..

 

[jdom84]

There痴 a car dealership locally that is offering 10 year 1 million mile warranty. What痴 the catch? I致e never stopped in and asked for the fine print but I figured there had to be something.

We have a dealer here that offers unlimited mile/year warranty... the catch is you must stick to the defined maintenance schedule they provide you, not the manufactures recommended schedule.


but on the financing front. If you are already going to use the cash to buy anything, you should see if there is a CC offer that will give you money for buying your large purchase. Like the Chase Ink - $500 after spending $3k and you get 1.5% also
CC churning done properly wont hurt your credit score and can net you an extra couple grand a year.

 

[MiserableOldFart]

We have a dealer here that offers unlimited mile/year warranty... the catch is you must stick to the defined maintenance schedule they provide you, not the manufactures recommended schedule.


but on the financing front. If you are already going to use the cash to buy anything, you should see if there is a CC offer that will give you money for buying your large purchase. Like the Chase Ink - $500 after spending $3k and you get 1.5% also
CC churning done properly wont hurt your credit score and can net you an extra couple grand a year.

I did the churning thing years ago when there were lots of offers going around. However, they apparently got wise to it and the special offers suddenly started coming through with serious up front costs, which quashed the idea going forward.

 

[inode]

Financial numbers can be presented 3 ways; my way, your way and the truth. Beyond representation of those numbers, you have to ask what do you want out of life? If you have your bases covered financially, do what makes you happy. Don't think that at a later age in life that you'll be in the same health to do what you can today. I've watched family members go down hill in their health with regrets for not seizing what they should have when they were younger whether it be traveling, missed opportunities, etc. I'm 43 now and just bought a 93 acre "hobby" farm and a new tractor. The tractor was financed at 0% for 60 months. I recognize the realities of financing. However, I have my financial obligations covered and for me, it was living out a dream. Should times get hard, I can liquidate and still have been able to enjoy a bucket list item.

 

[RSR]

Long-term average inflation rate is 3.22% $30,000 tractor today will cost $35151 in 5 years based on the average. Savings of $1,183 financing tractor now.
US Inflation Long Term Average

Let's use 3% average instead --- $30,000 tractor today will cost $34778 in 5 years based on 3% inflation. Savings of $810 financing tractor now

Using the inflationdata.com link above the calculator shows from Aug 2013 to Aug 2018 a $30k tractor in 2013 is now $32343.41 today - Loss of $1624 financing tractor now

$4929 investment earnings (tax removed) - $1183 saved by financing now = $3746 / 60 months = $62.43 cost per month.
$4929 investment earnings (tax removed) - $810 saved by financing now = $4119 / 60 months = $68.65 cost per month.
$4929 investment earnings (tax removed) + $1624 loss by financing now = $6553 / 60 months = $109.22 cost per month

There is no scenario where you lose $9767.22. Rather than going without a tractor, where else can money be saved?

How much does one spend per day on 1. Coffee? 2. Eating out? 3. Cigarettes/Alcohol? that can be cut back/eliminated for cost savings? For $62.43 to $109.22 per month?

If it takes me 12 hours a week to do chores by hand and 4 hours with tractor what do I do with the extra time? Get a 2nd job and invest that money? Go fishing? Enjoy my kids/spouse/time with friends? Contribute my time to a charity helping others?

If I live in a tent and save money for 30 years can I buy a house? If I walk to work every day can I save money to buy a car? Do I want to?



Is this a disingenuous thread where the OP didn't want advice but wanted to point out how much money we who finance "lose"? Is the scenario valid in the real world? Does anyone who has $0 in savings plan on putting away $500 a month in investments or financing a tractor for $566.14 per month? Does anyone who has $0 in savings make enough money for either investing or tractor payments after they pay for housing, car, food, utilities, etc unless they live in a tent and walk to work in which case they probably don't own land to use a tractor on anyways? Just saying....

I say invest the money for 5 years and one can always come to TBN and watch "tractor ****" aka everyone else's pictures of their tractors. :laughing::laughing:

As previously mentioned, I calculated everything in "today's dollars" by removing inflation from my investment returns. We can just as easily calculate it taking into account the tractor inflation value:

Tractor = $30,000
Inflation at 3%: Tractor value in 5 years $34,778.22 (Note, this neglects tractor depreciation, which is probably not a good assumption either).
Interest payments on a $30,000 tractor at 5% interest for 5 years: $3,968.22
Difference = +810 (So far, so good)

Return on savings assuming 10% (instead of 7%) because the inflation is now factored into the tractor price, and SP500 historically returns 10% (14% over the last 5 years)
$500 monthly investment for 5 years, at 10% return, and subtracting 15% annual taxes on the interest (which I initially didn't consider - I should have) yields a total value of $37,272.89.

So total difference in money is: Invested money - (tractor value - interest payment) = $37,272.89 - ($34,778.22 - $3968.22) = $6,462.89 total cost of having the tractor now as opposed to waiting. That's assuming the tractor experiences zero depreciation, which is unrealistic, so the total cost should be a little higher than that. In my personal opinion, that seems like a lot of money.

Regarding your latter comments. Yes, for the past 3'ish years I have been slowly saving for a tractor on top of all of my other expenses, retirement savings, etc. , while looking at an unhealthy amount of tractor ****. I have enough saved up for ~70% of the total tractor cost.

If I honestly answer Arrow's question, at this point in my life, with work obligations, family, and church service, I really need more time. (The wife and I went from thinking we wouldn't be able to have kids to having 1 (now 3 yrs old), followed by twins (now 1 yrs old). As some have suggested, because I already have a lump sum saved, even if I pay the interest/finance charge, as long as that lump sum continues to earn interest at a rate higher than the interest/finance rate on the loan, I'll come out ahead, just not as much ahead as if I waited to pay cash.

However, this approach would mean the "cost" of buying a tractor now is significantly reduced, and at some point that number is going to be worth the benefit of having the tractor now, versus waiting. (If $6,462.89 is too much right now, what about $5,000, or $4,000, or ... you get my point). The question is "what is that number worth"? It's certainly different for everyone. I'm just trying to find my comfort zone, while hoping others can give their perspective on it. I do tend to agree with the oft expressed sentiment that once I get a tractor, I will probably find a lot of things that it is useful for that I previously didn't consider.

My problem in all of this is that I come from a long line of <ahem> ... let's say, "spendthrifts". Aside from purchasing a home, I have never been in debt a day in my life. This has allowed me to be in a stable financial situation where I am on track for a comfortable retirement, have liquid emergency savings if something catastrophic happens, and can still put aside some each month for items such as a tractor.

However, living this way for many years makes the thought of taking out a loan a very difficult pill to swallow; even if what I really need right now is time, rather than money, and in the grand scheme of things the financial "loss" would not be all that great.

I'm not one to make rash decisions, but instead prefer to think something completely through and try to see all of the angles. However, I also realize that my way of looking at it purely as an economic exercise does not necessarily paint a complete picture of the decision making process. For this reason, it's very helpful to hear how others came to their decision, as it helps me to consider variables/considerations I may be overlooking.

 

[jdom84]

I did the churning thing years ago when there were lots of offers going around. However, they apparently got wise to it and the special offers suddenly started coming through with serious up front costs, which quashed the idea going forward.

Fees would stop things for sure however, I think CC companies are well aware of the churning and I don't think they care at all. In-fact they might actually be making money off it because how many people think they are going to churn and rack up $$$ debt for the reward, thinking they will have it paid off before the 0% promo ends in 12 months but then fail to do so. There are millions of people paying 20% financing fees and maybe? 1% of card holders are actually able to churn.

If they weren't making money, they wouldn't offer it!